The Coming Week: Santa Setup

Stocks are up 80% of the time in the week before Christmas.

In past years, the week before Christmas has generally been kind to stocks.

But for the historical trend to play out this year, analysts say, oil prices must remain steady and health care stocks need to stabilize after Pfizer's ( PFE) recent nose dive.

A smattering of earnings and handful of economic reports are also likely to provide some direction in what is expected to be a quiet week of trade. The markets will be closed Friday for the Christmas holiday.

"Historically, the week before and after Christmas tend to have an upward bias," said Art Hogan, chief market analyst at Jefferies & Co. "In fact, if you go back over the last 45 years, that week is up 80% of the time."

Hogan said he expects the week to be defined by low volume, however, with activity slowing down sharply by Wednesday.

Last week, stocks rose, with the Dow up 1% and the S&P 500 up 0.5%. At the same time, oil prices surged as forecasters called for below-normal temperatures across the country through the end of December. Nymex crude futures jumped more than $2 Friday to $46.28 a barrel.

"If oil goes back up to $50 a barrel, alarm bells will start to go off again," said Hogan.

Investors will also be paying close attention to developments in the drug sector. On Friday, Pfizer plunged 11%, weighing heavily on the Dow, after saying that its arthritis drug Celebrex posed "increased cardiovascular risk" when used in high doses. The Amex Pharmaceutical Index shed 3%.

Peter Cardillo, chief market strategist at S.W. Bach, doesn't expect another sharp selloff in the sector next week. In fact, he said investors could be tempted to do some bargain-hunting, helping to drive stocks higher.

"I think the market can continue to inch up," he said. "But it's obviously going to be a rather slow week."